UPDATE 1-Google settles with publishers over digital books

* Settlement does not affect Google's current litigation with Author's Guild

(Adds AAP statement, background on dispute)

Oct 4 (Reuters) - Google Inc and a group of publishers have agreed to a settlement, capping seven years of litigation over the rights of publishers and Google's mission to become the world's digital library.

The Internet company and the Association of American Publishers (AAP) said on Thursday that U.S. publishers can decide to participate in making books and journals available for Google to digitize for its Library Project. Further terms of the settlement were not disclosed.

"It shows that digital services can provide innovative means to discover content while still respecting the rights of copyright-holders," Tom Allen, AAP's president and CEO, said in a statement.

The lawsuit was filed by AAP members McGraw-Hill Companies Inc , Pearson Education Inc and its sister Penguin Group USA, John Wiley & Sons and CBS Corp's Simon & Schuster.

Google has scanned roughly 15 million books in what it has said was an effort to provide easier access to the world's knowledge. It is carrying out the scans in partnership with major libraries around the world, including the New York Public Library and Stanford Library.

It was sued in 2005 by the Authors Guild and the Association of American Publishers for violating copyright laws, but reached an earlier settlement by agreeing to pay $125 million to people whose copyrighted books have been scanned, and to locate and share revenue with the authors who have yet to come forward.

Still, some critics contended the settlement gave Google an unfair competitive advantage. A federal court agreed, and rejected the earlier settlement.

Thursday's settlement does not affect Google's current litigation with the Authors Guild.

(Reporting by Jennifer Saba in New York and Siddharth Cavale in Bangalore; editing by Saumyadeb Chakrabarty and Matthew Lewis)